The free fall in the Indian rupee extended to a third straight session on Tuesday. The partially convertible rupee breached the 64 against dollar to hit yet another record low. The rupee fell nearly 1.5 per cent to a low of 64.05 after closing at 63.13 on Monday.

Dealers said continued dollar demand from state-run banks for oil, defence and other interest payments has been pressuring the rupee.

The sharp fall in the rupee hit stock markets with the BSE Sensex falling below the key 18,000 levels for the first time since September 13, 2012. The 50-share Nifty came close to breaching the key 5,300 levels, dropping over 100 points.

The Reserve Bank of India has proven unable to stem the rupee's selloff, despite intervention and curbs on outflows from companies and individuals, which have dented India's stock and bond markets.

The currency continued to bear the brunt of a large current account deficit and fears of tapering of the monetary stimulus by the U.S. Federal Reserve on the rise. Bond yields surged with the 10-year yield surging 15 basis points to 9.38 per cent.

Rising yields have pressured banking stocks, which fell over 2 per cent today. Banking stocks have plunged over central bank measures to curb liquidity in the system.

The rupee has fallen more than 13 per cent in spot trading against the U.S. dollar so far this year. Majority of the decline in the rupee has come after the U.S. Federal Reserve hinted in May that it would begin slowing its pace of quantitative easing.